Luk Fook Warns of Profit Drop Amid Lockdown

RAPAPORT... Luk Fook expects a sharp fall in both revenue and profit for the full fiscal year amid a lockdown in all its major markets due to the coronavirus.

“Based on…data for…January and February, and the preliminary assessment of the operational situation in early March, there will be an acute drop in the revenue for the fourth quarter,” the retailer said Wednesday. “It is therefore highly likely that certain losses will be incurred in the fourth quarter. It may lead to [a] substantial decline in the group’s revenue and profit for the financial year ending March 31, 2020.”

Same-store sales — at Luk Fook outlets open for more than a year — plunged 50% in the first two months of the year. Total same-store sales in Hong Kong and Macau slid 53% for the two-month period, as the jeweler was forced to close most of its stores in Macau in February to stem the spread of the coronavirus. Same-store gold sales plummeted 47%, while gem-set jewelry purchases dropped 58%. The figures are for shops the company operates itself, but exclude franchises.

Overall same-store sales in mainland China fell 37%, as most of the shops in the region closed in February. Revenue from gold products slumped 39%, with gem-set jewelry down 32%.

“The economic activities on the mainland were almost halted due to the outbreak,” the company noted. “In the first two months of the year, industry, consumption and investment all hit [a] record low, with double-digit declines, crashing the macroeconomy severely.”

Revenue dropped approximately 60% for the nine months ending December 31, according to unaudited company results, while profit for the period fell about 55%, the jeweler said.

Luk Fook has implemented a “natural turnover” and unpaid-leave policy to cut costs while the pandemic persists, it reported. It also negotiated with its stores’ landlords for rental reductions. Despite the downturn in the market, the company has moved forward with its expansion plans. For the full fiscal year ending March 31, shop openings will come to “a bit less” than the 300 it targeted.

Most of the company’s shops in mainland China reopened in March, Luk Fook said. However the number of customers was still “sparse,” it noted.

“It is expected to take some time for the business to resume [to] normal,” the jeweler added.

Tourism to Hong Kong fell 53% to 3.2 million visitors in January, the Hong Kong Tourism Board reported. Of those, 2.5 million came from mainland China, 54% down from the same period last year.

Luk Fook will publish its full results for the fourth quarter and the fiscal year around mid-April.